- The Washington Times - Friday, July 13, 2007

DENVER - Long before dawn breaks, Greg Brenneman is on the run, a habit that can be a bit disconcerting for his temporary houseguest.

Quiznos‘ new chief executive officer invited Steve Provost to stay with him during Mr. Provost’s move to Denver, an invitation that extended to eight-mile runs. “He runs on a treadmill and I try desperately to keep up next to him,” said Mr. Provost, the new chief marketing officer.

Mr. Brenneman, who relishes a challenge as much as he does a good run, is applying his turnaround expertise — first with Continental Airlines and then Burger King — to the troubled sandwich chain, whose dissatisfied franchise owners have complained about low profits, company operating requirements and the franchisee recruiting process.

Since jumping into the fray in January, Mr. Brenneman has worked to reduce food costs by as much as 4 percent, open communication channels with franchisees and test new products, like a Quiznos taco, to boost profits.

“In these situations, the biggest challenge is always identifying what the few things you can do to really improve profitability for the franchise owners are and then doing them quickly,” said Mr. Brenneman.

Some owners are pleased with the changes, especially the lower food costs. Others remain skeptical.

Ron DiSaverio, who owns three Denver-area Quiznos, said the company is moving in the right direction. “It just takes awhile so I’m always a little bit wait-and-see attitude only because that’s the nature of this business,” he said.

Founded in 1981 in Denver’s Capitol Hill neighborhood, Quiznos sought from the beginning to set itself apart with made-to-order toasted subs. The company and its 18 restaurants were purchased 10 years later by franchise-owner Rick Schaden and his father, Dick Schaden, who set it on a fast-growth track.

The Schadens took the company public in 1994, only to convert it to a private operation in a $6.5 million transaction in 2001 after deciding the stock sale wasn’t an effective source of financing.

Last year, private equity firm J.P. Morgan Partners LLC became an ownership partner, and Mr. Brenneman later became a partner through his company, Turnworks Inc.

Through the roller-coaster ownership ride, the chain expanded quickly, to at least 5,000 stores. Today it’s ranked third among franchise companies behind Subway and Arby’s by Technomic, an industry analyst firm. Although Quiznos does not release much information, Technomic restaurant industry analyst Darren Tristano said Quiznos has average sales of about $425,000 a year per store while Subway has average sales of about $375,000.

Quiznos‘ success has come with growing pains.

Lawsuits filed by attorney Justin M. Klein, representing franchise owners in Illinois, Michigan and Wisconsin, say the company draws in prospective owners, who pay $25,000 for a franchise, but doesn’t give them complete facts about restaurant locations and business operations.

Mr. Klein contends many franchisees sign contracts, only to wait a year or more for the company to build a restaurant. The suits also accuse the company of requiring franchise owners to buy all supplies from Quiznos at higher prices than if they bought locally.

“It’s common in the industry to have restrictions on certain suppliers, mandated suppliers, but it has to relate to quality standards,” said Mr. Klein, of Red Bank, N.J. “When it doesn’t relate to quality standards, it’s merely an abuse.”

The company denied the accusations and filed motions to dismiss the suits.

Mr. Brenneman, meanwhile, has reached out to franchisees and targeted their food and other costs. If he can cut food costs by 3 percent and coupon discount offers by 4 percent, Mr. Brenneman believes he can add $25,000 to $30,000 in profits for franchisees.

Quiznos hired a new advertising agency, Cliff Freeman and Partners, to produce edgier ads that showcase upscale food at a lower cost. Its marketing budget is about $80 million a year, Porter said, targeting adults looking for a step up from traditional fast food and young adults who have “gotten bored with chicken strips.” Mr. Brenneman and his team also are testing new products, such as flatbread and cold sandwiches.

He has met with franchise owners, delivers a weekly voice mail call to discuss operating developments and spends late-night hours answering franchisee e-mails. He also created a Web site to assist franchisees and plans to give each a free computer to help them with a new online ordering program.

“There’s unbelievable enthusiasm coming back into the system,” Mr. Brenneman said.

Several franchise owners said they are pleased that food and paper costs — a large part of their overall costs — have dropped and that discount coupons have been reduced.

One of them, Mr. DiSaverio, said his food costs today average between 28 percent and 29 percent of total costs, which he believes is in line with the general quick-service food industry. He buys his food from a Denver company approved by Quiznos that also sells products to other quick-service restaurants.

Mr. Tristano believes it will take time to show results but that Mr. Brenneman seems well-suited for the job. “As a chain they seem to be doing very well overall,” he said.

Attorney Mr. Klein is reserving judgment.

Mr. Brenneman’s management moves are positive, Mr. Klein said, but “whether or not any of the changes have been positive on the ground level — there’s some mixed feelings in that regards still.”

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